In this section we will discuss our thought process throughout pinnacle five. Starting with Part B, our team utilized our work from the previous pinnacle to determine the proper audit objectives for each existing control. For Part C, our team brainstormed multiple tests of controls for each existing control and then decided on the strongest test for each. Luckily for four of the ten existing controls, reperformance is a possible test which provides the strongest form of internal control testing. We chose reperformance for the reconciliation controls as well as the pre-approved vendor list control

QUESTION

Pinnacle #5 (Ch. 14)

Part A-D:

Part E:

Pinnacle Manufacturing Audit Program

Test of Controls and Substantive Test of Transactions Audit Procedures for Acquisitions and Cash Disbursements

(Sample size and the items in the sample are not included.)

General

1. Trace name on vendor invoice to pre-approved vendor list
2. Foot acquisitions/cash disbursement journals
3. Tie balance amounts from bank statements to general ledger
4. Reconciliation of bank statement and cash disbursement journal
5. Reperformance of:
   1. reconciliation of the accounts payable master file and general ledger
   2. monthly bank reconciliation
6. Observation of a P.O. going through the approval process
7. Reperformance of purchasing process to test if this control works properly

Receipt of Goods

1. Examine vendor invoice for proper account classification.
2. Trace:
   1. Invoices to acquisitions journal
   2. Items from the receiving report to acquisitions journal

Cash Disbursement to Vendor and Recording of Acquisition in the Records

1. Inspect acquisitions journal for duplicate entries
2. Vouch journal entries made in the acquisitions journal to purchase orders, receiving reports, and invoices
3. Recalculate information in document package
4. Inspection of randomly selected:
   1. Voucher packages
   2. Checks
   3. Receiving reports

Processing Cash Disbursements and Recording the Amounts in the Records

1. Trace cancelled check to acquisition journal
2. Inspect randomly selected checks to see if the related voucher packages were actually cancelled
3. Observation of:
   1. verification and check preparation
   2. document review and check signing

Presentation and Disclosure of Acquisitions and Cash Disbursements in the Financial Statements

1. Read footnotes to evaluate the understandability and accuracy of the disclosures.
2. Observe independent review of related financial statement disclosures
3. Trace selected entries from the cash disbursements journal to the accounts payable master file and test for dates and amounts

Group Write Up

In this section we will discuss our thought process throughout pinnacle five. Starting with Part B, our team utilized our work from the previous pinnacle to determine the proper audit objectives for each existing control. For Part C, our team brainstormed multiple tests of controls for each existing control and then decided on the strongest test for each. Luckily for four of the ten existing controls, reperformance is a possible test which provides the strongest form of internal control testing. We chose reperformance for the reconciliation controls as well as the pre-approved vendor list control. The other two tests of controls we used were inspection and observation. Inspection was chosen for the controls that included prenumbered documents as well as the cancelation of voucher packages control. Observation was chosen for existing controls that are more of a process than a physical control, such as the review of documents before check signing, so we felt the best way to test these types of controls was to observe the employees responsible for doing them. Moving on to Part D, we had a very similar approach as Part C where we worked to determine the test that provided the strongest form of evidence. As many of the existing controls affect the occurrence or completeness objective, we made sure to create substantive tests that are testing in the correct direction. For example, testing for occurrence should start with the accounting records and vouch to the supporting documentation, but testing for completeness should start with the supporting documentation and be traced to the accounting records. After Part D, Part E was simply separating the tests between acquisitions and cash disbursements and eliminating duplicate procedures.

ANSWER

 Pinnacle Manufacturing Audit Program: Controls and Substantive Tests for Acquisitions and Cash Disbursements

Introduction

The Pinnacle Manufacturing Audit Program provides a comprehensive framework for assessing controls and conducting substantive tests related to acquisitions and cash disbursements. This essay discusses the key aspects of the program, including the identification of existing controls, tests of controls, and substantive tests of transactions. Additionally, it highlights the rationale behind the chosen procedures and the focus on audit objectives.

Part B: Identification of Existing Controls

To begin the audit process, the audit team identified ten key existing controls related to acquisitions and cash disbursements in Pinnacle Manufacturing (Methner et al., 2010). These controls aim to address various transaction-related audit objectives, such as occurrence, completeness, accuracy, posting and summarization, timing, and presentation. Each control was assigned a transaction-related audit objective for further evaluation.

Part C: Tests of Controls

The audit team performed tests of controls to assess the effectiveness of the identified existing controls. For each control, a specific test was chosen to evaluate its reliability. The tests of controls included observation, inspection, and reperformance. Observation was utilized for controls that involved process-based activities, while inspection was applied to controls relying on prenumbered documents. Reprocessing, which involves independently redoing the control process, was selected as the test for the reconciliation controls and the pre-approved vendor list control.

Part D: Substantive Tests of Transactions

After conducting tests of controls, the audit team proceeded to perform substantive tests of transactions. These tests focus on specific audit objectives and provide evidence regarding the accuracy and validity of transactions. The team ensured that the substantive tests aligned with the relevant audit objectives (Decision Theory Aspects of Internal Control System Design/Compliance and Substantive Tests on JSTOR, n.d.). The substantive tests of transactions were designed to address occurrence, completeness, accuracy, posting and summarization, classification, timing, and presentation.

Part E: Substantive Tests of Transactions by Audit Objective

In this section, the essay provides a breakdown of the substantive audit procedures for both acquisitions and cash disbursements based on the transaction-related audit objectives. Each objective is associated with a specific test to achieve the desired level of evidence (Audit risk–Part IV – ProQuest, n.d.). The tests include examining supporting documents, tracing documents from one record to another, recalculating amounts, reviewing financial statement disclosures, and comparing dates across various records.

Group Write Up

The essay concludes by explaining the collaborative process undertaken by the audit team throughout the Pinnacle Five engagement. The team analyzed the existing controls, brainstormed various tests of controls, and determined the most suitable and effective procedures. The choice of tests was based on the type of control, the audit objective being addressed, and the desired strength of evidence. Additionally, the team ensured that the substantive tests of transactions were aligned with the corresponding audit objectives.

Conclusion

The Pinnacle Manufacturing Audit Program demonstrates a systematic and thorough approach to assessing controls and conducting substantive tests for acquisitions and cash disbursements. By identifying existing controls, performing tests of controls, and conducting substantive tests of transactions, the audit team can provide reliable assurance regarding the integrity and accuracy of Pinnacle Manufacturing’s financial statements. The chosen procedures are tailored to address specific audit objectives and provide the necessary evidence to support the audit conclusions.

References

Audit risk–Part IV – ProQuest. (n.d.). https://search.proquest.com/openview/55a51011fbba3cac9ff33ca9d9f82c46/1?pq-origsite=gscholar&cbl=41797 

Decision Theory Aspects of Internal Control System Design/Compliance and Substantive Tests on JSTOR. (n.d.). https://www.jstor.org/stable/2490473

Methner, M. M., Hodson, L., Dames, A., & Geraci, C. (2010). Nanoparticle Emission Assessment Technique (NEAT) for the Identification and Measurement of Potential Inhalation Exposure to Engineered Nanomaterials—Part B: Results from 12 Field Studies. Journal of Occupational and Environmental Hygiene, 7(3), 163–176. https://doi.org/10.1080/15459620903508066